SCI Engineered Materials Reports Q3 2024 Results

TL;DR

SCI Engineered Materials revenue up slightly to $4.57M for 9 months ending 9/30/24. Still early days.

AI Summary

SCI Engineered Materials, Inc. filed its 10-Q for the period ending September 30, 2024. The company reported revenue of $4.568 million for the nine months ended September 30, 2024, an increase from $4.530 million for the same period in 2023. Details on specific product revenues or profitability are not immediately available in this excerpt.

Why It Matters

This filing provides investors with an update on SCI Engineered Materials' financial performance for the third quarter of 2024, indicating a slight increase in revenue compared to the previous year.

Risk Assessment

Risk Level: medium — The filing is a standard quarterly report, but without detailed financial performance metrics or forward-looking statements, assessing specific risks is difficult.

Key Numbers

• $4.568M — Revenue (9 months ended 9/30/24) (Represents the company's top-line performance for the period.)
• $4.530M — Revenue (9 months ended 9/30/23) (Provides a year-over-year comparison for revenue.)

Key Players & Entities

• SCI Engineered Materials, Inc. (company) — Filer of the 10-Q report
• 20240930 (date) — End of the reporting period
• 20241101 (date) — Filing date
• $4.568 million (dollar_amount) — Revenue for the nine months ended September 30, 2024
• $4.530 million (dollar_amount) — Revenue for the nine months ended September 30, 2023

FAQ

Filing Documents

• scia-20240930x10q.htm (10-Q) — 995KB
• scia-20240930xex31d1.htm (EX-31.1) — 13KB
• scia-20240930xex31d2.htm (EX-31.2) — 13KB
• scia-20240930xex32d1.htm (EX-32.1) — 7KB
• scia-20240930xex32d2.htm (EX-32.2) — 7KB
• scia-20240930xex99d1.htm (EX-99.1) — 204KB
• scia-20240930xex99d1001.jpg (GRAPHIC) — 5KB
• 0001558370-24-014084.txt ( ) — 4974KB
• scia-20240930.xsd (EX-101.SCH) — 32KB
• scia-20240930_cal.xml (EX-101.CAL) — 53KB
• scia-20240930_def.xml (EX-101.DEF) — 93KB
• scia-20240930_lab.xml (EX-101.LAB) — 296KB
• scia-20240930_pre.xml (EX-101.PRE) — 211KB
• scia-20240930x10q_htm.xml (XML) — 802KB

FINANCIAL INFORMATION

PART I. FINANCIAL INFORMATION Item 1.

Financial Statements

Financial Statements Balance Sheets as of September 30, 2024 (unaudited) and December 31, 2023 3 5 6 7

Notes to Financial Statements (unaudited)

Notes to Financial Statements (unaudited) 8 Item 2.

Management's Discussion and Analysis of Financial Condition and Results of Operations

Management's Discussion and Analysis of Financial Condition and Results of Operations 15 Item 3.

Quantitative and Qualitative Disclosures About Market Risk

Quantitative and Qualitative Disclosures About Market Risk N/A Item 4.

Controls and Procedures

Controls and Procedures 19

OTHER INFORMATION

PART II. OTHER INFORMATION Item 1.

Legal Proceedings

Legal Proceedings N/A Item 1A.

Risk Factors

Risk Factors N/A Item 2. Unregistered Sales of Equity Securities and Use of Proceeds N/A Item 3. Defaults Upon Senior Securities N/A Item 4. Mine Safety Disclosures N/A Item 5. Other Information N/A Item 6. Exhibits 21

Signatures

Signatures 22 2 Table of Contents

FINANCIAL INFORMATION

PART I. FINANCIAL INFORMATION

FINANCIAL STATEMENTS

ITEM 1. FINANCIAL STATEMENTS SCI ENGINEERED MATERIALS, INC. BALANCE SHEETS ASSETS September 30, December 31, 2024 2023 (UNAUDITED) Current Assets Cash and cash equivalents $ 7,656,046 $ 5,673,994 Investments - marketable securities, short term 509,478 1,000,000 Accounts receivable Trade, less allowance for doubtful accounts of $ 15,000 946,222 854,501 Tax - Employee Retention Credit 40,539 40,539 Other 28,919 15,607 Inventories, net 1,790,209 4,654,398 Prepaid purchase orders 490,858 1,123,980 Prepaid expenses 102,588 214,458 Total current assets 11,564,859 13,577,477 Property and Equipment, at cost Machinery and equipment 8,758,325 8,677,446 Furniture and fixtures 153,957 129,476 Leasehold improvements 744,297 744,297 Construction in progress 161,809 52,097 9,818,388 9,603,316 Less accumulated depreciation and amortization ( 7,553,523 ) ( 7,359,310 ) Property and equipment, net 2,264,865 2,244,006 Other Assets Investments, net - marketable securities, long term 1,499,000 994,478 Right of use asset, net 1,267,242 592,170 Other assets 67,627 78,289 Total other assets 2,833,869 1,664,937 TOTAL ASSETS $ 16,663,593 $ 17,486,420 The accompanying notes are an integral part of these financial statements. 3 Table of Contents SCI ENGINEERED MATERIALS, INC. BALANCE SHEETS LIABILITIES AND SHAREHOLDERS' EQUITY September 30, December 31, 2024 2023 (UNAUDITED) Current Liabilities Finance lease obligations, current portion $ — $ 49,149 Operating lease obligations, current portion 160,728 111,193 Accounts payable 540,794 385,489 Customer deposits 1,735,251 4,871,035 Accrued compensation 420,288 406,971 Accrued expenses and other 156,644 120,624 Total current liabilities 3,013,705 5,944,461 Deferred tax liability 84,934 69,846 Operating lease obligations, net of current portion 1,108,533 492

NOTES TO FINANCIAL STATEMENTS

NOTES TO FINANCIAL STATEMENTS (UNAUDITED) Note 1. Business Organization and Purpose SCI Engineered Materials, Inc. ("SCI," "we" or the "Company"), an Ohio corporation, was incorporated in 1987. The Company operates in one segment as a global supplier and manufacturer of advanced materials for Physical Vapor Deposition ("PVD") thin film applications. The Company is focused on markets within the photonics industry including Aerospace, Automotive, Defense, Glass, Optical Coatings and Solar, and substantially all revenues are generated from customers with multi-national operations. The Company develops innovative customized solutions enabling commercial success through collaboration with end users and Original Equipment Manufacturers. Note 2. Summary of Significant Accounting Policies Basis of Presentation - The accompanying unaudited financial statements have been prepared in accordance with U.S. generally accepted accounting principles for interim financial information and with instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by U.S. generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments considered necessary for fair presentation of the results of operations for the periods presented have been included. The financial statements should be read in conjunction with the audited financial statements and the notes thereto for the year ended December 31, 2023. Interim results are not necessarily indicative of results for the full year. Use of Estimates - The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ f

NOTES TO FINANCIAL STATEMENTS

NOTES TO FINANCIAL STATEMENTS (UNAUDITED) Note 2. Summary of Significant Accounting Policies (continued) Contract assets – The following table presents changes in the Company's contract assets during the nine months ended September 30, 2024 and 2023: Balance at beginning of period Billings Payments received Balance at end of period Nine months ended September 30, 2024 Accounts receivable $ 854,501 $ 17,819,042 $ ( 17,727,321 ) $ 946,222 Nine months ended September 30, 2023 Accounts receivable $ 842,647 $ 20,954,960 $ ( 20,578,781 ) $ 1,218,826 Customer deposits – Amounts that have been invoiced are recognized in accounts receivable, customer deposits or revenue, depending on whether the revenue recognition criteria have been met. Customer deposits represent amounts billed for which revenue has not yet been recognized. Customer deposits typically relate to uncompleted purchase orders which have been partially paid for by customers prior to performance of those services or transfer of control of the product. The following table presents changes in contract liabilities during the nine months ended September 30, 2024 and 2023: Balance at beginning of period Billings Recognized revenue Balance at end of period Nine months ended September 30, 2024 Contract Liabilities: Customer deposits $ 4,871,035 $ 9,501,877 $ ( 12,637,661 ) $ 1,735,251 Nine months ended September 30, 2023 Contract Liabilities: Customer deposits $ 1,825,595 $ 18,185,500 $ ( 15,774,668 ) $ 4,236,427 Employee Retention Credit (ERC) - The Company qualified for federal government assistance through Employee Retention Credit provisions of the Consolidated Appropriations Act of 2021 during 2021 and 2020. The purpose of the Employee Retention Credit was to encourage employers to keep employees on the payroll, even if they were not working during the covered period because of the coronavirus outbreak. These funds were recorded in the Sta

NOTES TO FINANCIAL STATEMENTS

NOTES TO FINANCIAL STATEMENTS (UNAUDITED) Note 4. Investments (continued) As of September 30, 2024 and December 31, 2023, the Company held investments in corporate bonds rated A- or higher, and U.S. government securities that are required to be measured for disclosure purposes at fair value on a recurring basis. The bonds and government securities are considered held-to-maturity and are recorded at amortized cost on the balance sheet. These investments are considered level 2 as detailed in the table below. The Company considers investments which will mature in the next twelve months and interest receivable on the long-term bonds as current assets. The remaining investments are considered non-current assets including the investment in marketable securities which the Company intends to hold longer than twelve months. The fair value of these investments was estimated using recently executed transactions and market price quotations. At September 30, 2024, the length of time until maturity of the bonds currently owned ranged from 8 to 32 months . The amortized cost, allowance for credit losses, fair value, and the related unrecognized gains and losses of these investments, were as follows: Gross Gross Amortized Unrealized Unrealized Cost Losses Gains Fair Value September 30, 2024 Corporate bonds $ 1,500,000 $ — $ 913 $ 1,500,913 U.S. government treasuries 509,478 — 5,691 515,169 Total investments $ 2,009,478 $ — $ 6,604 $ 2,016,081 Allowance for credit losses ( 1,000 ) Total investments, net $ 2,008,478 December 31, 2023 Corporate bonds $ 1,500,000 $ ( 9,078 ) $ — $ 1,490,922 U.S. government treasuries 509,478 ( 1,786 ) — 507,692 Total investments $ 2,009,478 $ ( 10,864 ) $ — $ 1,998,614 Allowance for credit losses ( 15,000 ) Total investments, net $ 1,994,478 The Company uses an "expected credit loss" measurement objective for the recognition of credit losses for held-to-

NOTES TO FINANCIAL STATEMENTS

NOTES TO FINANCIAL STATEMENTS (UNAUDITED) Note 5. Common Stock and Stock Options (continued) ended September 30, 2024, 35,359 stock options were exercised by employees via cashless exercise. 15,116 options were exercised at $ 1.25 per share and 20,243 options were exercised at $ 0.84 per share. The cumulative status of options granted and outstanding at September 30, 2024 and December 31, 2023, as well as any options which became exercisable in connection with the Company's stock option plans is summarized as follows: Employee Stock Options Weighted Average Stock Exercise Options Price Outstanding at January 1, 2023 41,304 $ 1.05 Outstanding at December 31, 2023 41,304 $ 1.05 Exercised ( 35,359 ) 1.02 Outstanding at September 30, 2024 5,945 $ 1.25 Options exercisable at December 31, 2023 41,304 $ 1.05 Options exercisable at September 30, 2024 5,945 $ 1.25 Exercise price for options was $ 1.25 at September 30, 2024, with a contractual life of 3.6 years. Note 6. Inventories Inventories consisted of the following: September 30, December 31, 2024 2023 Raw materials $ 444,677 $ 3,222,642 Work-in-process 1,096,825 1,240,067 Finished goods 257,749 199,201 1,799,251 4,661,910 Inventory reserve ( 9,042 ) ( 7,512 ) $ 1,790,209 $ 4,654,398 11 Table of Contents SCI ENGINEERED MATERIALS, INC

NOTES TO FINANCIAL STATEMENTS

NOTES TO FINANCIAL STATEMENTS (UNAUDITED) Note 7. Earnings Per Share Basic income per share is calculated as net income divided by the weighted average of common shares outstanding. Diluted earnings per share is calculated as net income divided by the diluted weighted average number of common shares. Diluted weighted average number of common shares gives effect to all dilutive potential common shares outstanding during the period using the treasury stock method and convertible preferred stock using the if-converted method. Diluted earnings per share exclude all diluted potential shares if their effect is anti-dilutive. All common stock options listed in Note 5 that were out-of-the-money or anti-dilutive were excluded from diluted earnings per share. The following is provided to reconcile the earnings per share calculations: Three months ended September 30, Nine months ended September 30, 2024 2023 2024 2023 Net income $ 360,578 $ 578,784 $ 1,432,408 $ 1,628,163 Weighted average common shares outstanding - basic 4,564,259 4,530,207 4,546,269 4,528,524 Effect of dilution - stock options 4,604 31,501 4,551 30,684 Weighted average shares outstanding - diluted 4,568,863 4,561,708 4,550,820 4,559,208 Note 8. Line of Credit The Company renewed its line of credit with Fifth Third Bank for $ 1 million during August 2024. This line of credit has a maturity date of August 29, 2025 and bears interest equal to the rate of interest per annum established by Fifth Third Bank as its Prime Rate. No amounts were drawn on this line of credit as of September 30, 2024. Note 9. Income Taxes The provision for income taxes for the three and nine months ended September 30, 2024 and 2023 is based on our projected annual effective tax rate, adjusted for permanent differences and specific items that are required to be recognized in the period in which they are incurred. The effective tax rate was 22.7 % and 26.9 % for the three months

NOTES TO FINANCIAL STATEMENTS

NOTES TO FINANCIAL STATEMENTS (UNAUDITED) Note 10. Operating Lease The Company entered into an operating lease with a third party on March 18, 2014 for its headquarters in Columbus, Ohio. The terms of the lease include monthly payments ranging from $ 9,200 to $ 9,700 with a maturity date of November 30, 2024. During the nine months ended September 30, 2024, the Company modified its operating lease, which included changes to the lease terms and adjustments to the lease payments. The Company extended the lease period for an additional five years with a new maturity date of November 30, 2029. The terms of the lease include monthly payments ranging from $ 24,700 to $ 28,900 . The modifications did not result in a change in the classification of the lease, which continues to be classified as an operating lease. The lease liability was remeasured using the discount rate as of the effective date of the modification. The right of use asset was adjusted by the amount of the remeasurement of the lease liability. There are no restrictions or covenants associated with the lease. The lease costs were approximately $ 29,200 and $ 28,600 for the three months ended September 30, 2024 and 2023, respectively, and $ 87,600 and $ 85,900 during the nine months ended September 30, 2024 and 2023, respectively. Additionally, the variable lease costs were approximately $ 11,500 for the three months ended September 30, 2024 and 2023, and $ 50,000 and $ 45,000 during the nine months ended September 30, 2024 and 2023, respectively. The following is a maturity analysis, by year, of the annual undiscounted cash outflows of the operating lea

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